Venture Capital Firms’ Specialization, Differences and Complementarities

Abstract

The paper analyses the differences in venture capital (VC) firms, proposes a classification of the firms and empirically investigates their investment and co-investment behaviour. The VC firms are not homogeneous and beside funds they possess a diverse set of nonfinancial resources which they optimize. A classification is developed based on VC firm resources and specialization represented by organizational form and affiliation. Based on Australian market data, we classify the VC firms in three categories, namely strategic, financial and independent using resource based theory, and highlight differences. Then the firms’ specialization is related to their portfolio characteristics to identify and analyse differences and complementarities in terms of investment strategies. The influence of specialization in investment and co-investment strategies is also analysed. This study shows that specialization influences investment decisions and co-investor selection. Implications of such investment practices on resource efficiency, financial viability and transition to sustainability are also discussed.